Small businesses are still struggling to raise bank finance with 40 per cent of applications rejected in the past 12 months new research suggests.

A survey of 450 small UK businesses conducted by Albion Ventures found just 17 per cent has attempted to raise finance in the past 12 months, and 40 per cent of those applications were rejected.

The largest demand for working finance was from sole traders, accounting for 62 per cent of applications, according to the Albion Ventures Growth Report 2013.

On a sector basis, manufacturing businesses were most concerned about how a lack of access to finance would impact on their growth potential, followed by retailers, the research suggests.

Venture capital firm Albion Ventures said regionally, companies in the north of the UK were most likely to see raising finance as a threat to their business while it was seen as a minimum risk in London, “where sources of finance tend to be more accessible”.

Of those who have attempted to raise capital in the past 12 months, more than one in four (28 per cent) were looking for long term development capital while under a third (32 per cent) sought working finance to keep their business going.

The report also highlighted significant differences in attitudes towards raising finance between companies that have an optimistic and pessimistic outlook on their future growth prospects.

It found nine in ten pessimists looked to secure finance to pay day-to-day bills compared with under two thirds of optimists, which Albion suggests means companies are relying on debt “to keep themselves alive”.

Nearly all pessimists surveyed applied for a bank loan or overdraft while optimists applied for a number of a different finance options including equity, mezzanine and invoice discounting.

Optimists are much more likely to seek finance in order to develop their business, invest in new equipment and build new products and services, the survey suggests.

Patrick Reeve, managing partner at Albion Ventures said: “Given that SME cash deposits have been net positive throughout the financial crisis and are continuing to grow it is perhaps not surprising that only one in six SMEs have attempted to raise finance in the past year.

“It is commonly perceived that a shortage of finance has become inextricably linked to the fate of smaller businesses, yet the evidence from our report indicates that policymakers should avoid focusing on this issue at the expense of other areas that firms are more concerned about, notably red tape, regulation and a shortage of skilled staff.”